Blockchain

Cryptocurrency Price Prediction: How it Works?

Cryptocurrencies are the latest inventions in the financial sector that have been creating quite an uproar in the global economy, and therefore, cryptocurrency price predictions deserve a special mention. Fintech specialists and technology experts are taking keen interests in cryptocurrency price prediction and are arranging for blockchain conferences to make people aware of the latest revolution. Various types of cryptocurrency act like real money, but any central authority does not back cryptocurrencies, unlike real money. Instead, cryptocurrencies are backed by an innovative technology called blockchain technology that provides for provably fair transactions on the blockchain network; each transaction on the blockchain network is secured by unique cryptography. The word ‘cryptocurrency’ is derived from the word ‘cryptography,’ which is a technology to keep information hidden and safe from attackers. Blockchain is a decentralized technology on which the entire concept of cryptocurrencies is based.

There are two main types of cryptocurrencies:

  1. Coins that include bitcoin and altcoins
  2. Tokens

Bitcoin is the first digital currency created by using peer-to-peer technology to make instant payments. Each Bitcoin unit is a computer file stored in a ‘digital wallet’ application on a computer or smartphone. People can receive or send Bitcoins to and from their bitcoin wallet secured by a private and a public key. Every single bitcoin transaction is recorded on a public ledger, more commonly known as the blockchain network.

Altcoins or the alternative cryptocurrency coins refer to any coins that are not bitcoins. The name itself implies, “alternative to bitcoin.” Some popular altcoins are Namecoin (the first altcoin launched in 2011), Dogecoin, Litecoin, Peercoin, Auroracoin, etc. Most altcoins use similar algorithms as bitcoin, but there are exceptions too. Factom uses PoS algorithms that involve stakers instead of miners. Then there is Ethereum and NEO, both of which use different algorithms from Bitcoin.

Tokens are used more like stocks, and unlike cryptocurrencies, tokens are created and distributed through ICO (initial coin offering). Tokens can be represented in either of the following ways:

  • Value tokens
  • Security tokens
  • Utility tokens

Crypto Tokens vs. Coins

Crypto tokens are different from crypto coins (or altcoins) in the following ways:

Alternative Cryptocurrency Coins (Altcoins)

Altcoins refers to those coins that are alternatives to bitcoins. Most altcoins are derived from bitcoin’s open-sourced protocol, but altcoins have blockchain and protocols like Ethereum and NEO.

Tokens

Tokens do not have their blockchain network. They reside on another blockchain and consequently reap the benefits of their (other blockchain’s) technology. Tokens represent fungible and tradable assets that can be a commodity or even a cryptocurrency. Tokens are created through smart contracts that are self-executing and do not need any third-party intermediary to execute the smart contracts.Therefore, the main difference between crypto coins (or altcoins) and tokens lies in their structure. Alternative cryptocurrency coins are different cryptocurrencies having their blockchain networks, whereas tokens are created on top of another blockchain network that facilitates the creation of dApps.

Crypto coins or altcoins can be used as a ‘transfer of value,’ whereas tokens do not facilitate transfer themselves. Coins are native currencies of their blockchain network, whereas tokens reside on pre-existing blockchain networks.

Crypto coins can be exchanged only through cryptocurrency exchanges because they are built on non-standardized code protocols. On the contrary, tokens (e.g., ERC-20) can be exchanged through internal applications with minimal friction because they are built on standardized code protocols.

How to predict crypto price trends?

Analyzing crypto price trends is crucial for traders as it alerts them about the right time to enter the market. It also helps traders decide whether to buy, sell, or hold the cryptos to reap the maximum benefits. There are three ways to predict crypto price trends:

Technical analysis

Technical analysis involves using statistical trends based on historical price activities. The technical analysis depends on the idea that crypto prices follow trends and repeats themselves. Therefore, analysts focus on examining the price movements and trading volumes to forecast the future directions of crypto price, whether it will go up or fall in the future.

Fundamental analysis

Instead of depending on the historical price trends, fundamental analysis takes a different approach. It analyses the factors that contribute to the changing price trends. It focuses on the fact that the value of a cryptocurrency can be both undervalued or overvalued, and then it is time to make corrections.

Sentimental analysis

As the name implies, the sentimental analysis puts the trader’s sentiments and emotions into predicting the crypto price trends. Instead of relying solely on the market data, crypto analysts focus on emotional trends like panic selling or a purchasing spree based on public expectations and perceptions.

Understanding charts

Charts play a significant role in analyzing crypto price trends. A candlestick is a type of price chart used while performing technical analysis that displays high/low, open/closing prices of a derivative, security, or a currency.

Elements of Candlesticks

There are three main elements of a candlestick chart:

Natural Body: The difference between the opening and the closing prices is shown by the colored portion on the candlestick chart.

Upper Shadow: The vertical line between the high of the day and the closing price (in case of bullish pattern) or opening price (in the bearish pattern).

Lower Shadow: The vertical line between the lowest price of the day and the opening price (in case of bullish trend) or closing price (in the bearish trend).

Types of Candlesticks

Candlestick chart patterns can be divided into two main categories- bullish patterns and bearish patterns, which are further subdivided into the following categories:

Bullish Patterns-

Under the bullish patterns come the following types:

Hammer

This pattern indicates that an intense buying spree causes a surge in the prices despite having selling pressures.

Inverse Hammer

This pattern indicates buying pressures followed by selling pressures and that the buyers soon will have control over the crypto prices.

Morning Star

This indicates a reduction in the selling price and the onset of the bearish market.

Bearish Patterns-

Under the bearish patterns come the following types:

Hanging Man

This indicates selling pressures are more substantial than buying pressures.

Shooting Star

This indicates that the selling pressures are taking over the market.

Most popular techniques used for technical analysis for cryptocurrencies

Some of the most popular methods used for both short-term cryptocurrency forecast and long-term cryptocurrency forecast are listed below:

Trend lines

This is the most straightforward technical indicator for cryptocurrency price prediction. It consists of a straight line connecting two or more price points that extend into the future to represent support or resistance.

Average directional index

This is a technical indicator used by traders to determine the overall strength of a trend.

Bollinger bands

This tool is used for long-term cryptocurrency predictions. It takes into account the price range of an asset within which it typically operates.

Relative strength index (RSI)

RSI is a technical analysis tool or a momentum indicator that measures the strength of price trends of an asset or other market variables to determine whether they are overbought or oversold.

Standard Deviation

This is a technical indicator to measure the amount of variation or dispersion the crypto price trend has gone through over some time.

Moving Averages/RSI/MACD

Moving average highlights the direction of a price trend. It is a graphical representation to predict crypto price trends by considering the middle price movement of an asset over a specified period.

Fibonacci ratios

The Fibonacci retracement ratios are used to make an accurate cryptocurrency price forecast to the extent to which an asset could move from its current price.

Volume weighted average price (VWAP)

As the name implies, the value traded to its total volume traded over a particular period, mainly a day.

Time-weighted average price (TWAP)

It is a well-known trading algorithm to make cryptocurrency market predictions based on weighted average price, calculated over a specified time.

Resistance and support levels

The potential resistance and support levels can be identified using the Fibonacci retracement indicator, which helps traders to identify a likely trend change.

Are there any indicators that make analyzing market movements simpler?

Trading indicators are the tools used to interpret the behavior of a market, how the price moves in response to particular market behavior. Trading indicators are created using mathematical interpretations of the specific cryptocurrency’s historical price data and trading volume to predict the market trend. There are various technical indicators like Bollinger bands, fib retracement, moving averages, etc., that are used for the best cryptocurrency forecast. They perform three folded functions of prediction, confirmation, and creating alerts for investors and traders when entering the market and making the necessary moves.

However, technical analysis alone cannot gauge the fundamental factors contributing to the change in the price of a particular cryptocurrency. No two analysts can give out the exact crypto predictions. This is because each technical indicator selects trends based on their research. Hacking attacks, significant news stories, regulations, landmark agreements, new product launches, etc., changes how a technical indicator makes price predictions. Therefore, relying on just one form of technical analysis would not provide a reliable price forecast.

At CryptonewsZ, we make the most reliable cryptocurrency forecast. We use these trading tools and the popular technical charting tool, tradingview, to make appropriate price predictions for cryptocurrency trends. In addition, we also conduct a complete analysis of price forecasts for various cryptocurrencies. Thus, we are one of the best cryptocurrency forecast websites to count upon.

Conclusion

The crypto market consists of several variables that cannot be fit into one single chart. Therefore, there are many indicators in the market; the cryptocurrency price prediction platform chooses them according to their preferences and understandability. At CryptonewsZ, the best cryptocurrency forecast website, try to accurately teach all the technical indicators to speculate the crypto prices. However, a trader does not use all of the indicators for cryptocurrency forecasts because most of them duplicate each other. Using all of them would repeat the same portion of the market. Also, no indicators can predict the future with much accuracy; they only help traders to observe trends for assessing the direction and strength of the variables. Therefore, choosing the indicators wisely to make the correct cryptocurrency price prediction reflects the accurate picture of the market conditions.

Here, we offer cryptocurrency predictions of Bitcoin & altcoins along with their technical analysis, price charts, market sentiment and much more.

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